Posts Tagged ‘Set Up Costs’

Pure Retirement recently became the latest equity release provider to enter the lifetime mortgage market. Launched in January 2014, it signalled the re-emerging confidence & growing popularity in the equity release market.

However, it makes no sense for a new lender to enter the market without finding a niche for itself. So, over the past few months Equity Release Supermarket advisers have encountered practical experience of where the Pure Drawdown Plan has fitted in providing best advice scenarios. Here we help explain where we feel the Pure Retirement Plan wins, in an already competitive equity release marketplace.

First, the Pure Drawdown Plan in Detail

Before we enter the wheres & wherefores of how the Pure Plan fits in with equity release recommendations, let’s look at the Pure Retirement plan facts…

The Pure Retirement Drawdown Plan is the first offering from the new lender formed by funding assistance from equity release brokerage – Age Partnership. This follows the similar relationship that exists between more2life & Key Retirement Solutions and represents a growing trend where brokers have become equity release providers. This similarity is also evidenced from where the funding source is derived, in that Pure Retirement relies also on the same annuity backed insurer to give it the ability to fund its lending – Partnership Assurance.

The Pure Drawdown plan is a lifetime mortgage that starts later in life than most equity release schemes with a minimum age at commencement of 70. It’s aimed towards the higher end of the loan-to-value ratios without any medical underwriting, which the enhanced lifetime mortgage plans have the advantage of.

The starting percentage is 36% of the property value at age 70, which compares favourably with other high LTV products. Albeits not the highest maximum equity release plan out there, it has a neat trick up its sleeve with how it can still compete with these maximum lifetime mortgage plans. Details of how are explained later in this article.

As a member of the Equity Release Council, the Pure Drawdown Plan offers a free no-negative equity guarantee and 100% ownership of the home. Portability enables you to still move house once the plan has been set in force and the interest rate is fixed for life, launched at a reasonably competitive 6.74% monthly rate (7.1% representative APR).

The minimum loan is higher than most at £25,000, which is where Pure Retirement’s market lies and is available in England, Scotland & Wales.

This is a roll-up lifetime mortgage plan with the option of a cash reserve facility. Therefore, Pure Retirement will calculate the maximum release possible, from which an initial amount can be withdrawn. Any funds untaken, remain in a cash reserve held by Pure Retirement at no cost until needed in the future. Should it later be necessary to access these funds, they can be drawndown in minimum amounts of £5,000 with no further charges.

Where Pure Retirement Lifetime Mortgage Strengths Lie

As an independent equity release adviser, one of the most common reasons for client objection lies in the costs of implementing an equity release scheme. Here is where the Pure Drawdown Plan wins – set up costs!

Only one equity release company has previously offered a scheme whereby the standard terms dictate a cost effective route to market for any client taking out a lifetime mortgage, & that’s Partnership’s Enhanced Lifetime Mortgage. Some lenders will temporarily create pockets of time whereby a cashback exists or a reduced interest rate for a limited period, but these come & go.

However, Pure have created these features as a permanent fixture & all credit to them in seeing this gap in the market and understanding what the consumer requires. Afterall, many applicants want a release of equity to help them financially as they have limited funds in the first place. By asking them for more money up front, it makes the process more difficult for them to get the whole application underway. Pure Retirement alleviate these areas, both pre & post application stages, let me explain how and why.

Pure’s Set up Costs

Pure Retirement provide a two tier set up cost operation; one for equity release loans between £25,000 & £44,999, the other based on loans in excess of £45,000.

All equity release schemes will normally incur set up fees in four main areas – Valuation, application, solicitor & adviser charges.

Pure approach this differently in the sense they aim to cover the majority of costs; the more one borrows, the greater the help provided. For loans over £45,000 the cost is enhanced furthermore by them providing: –

FREE valuation

NO application fee

Contribution of £600 towards legal costs

Contribution of £500 towards the advice fee

Therefore, dependent upon how much the advice fee being charged is, which in the case of Equity Release Supermarket its £895; the net advice fee cost would only be £395. Bearing in mind we can source an ERSA equity release solicitor, for a reasonable £495 + VAT & disbursements (including home visit) the £600 contribution from Pure Retirement should cover this on a standard freehold property. This effectively means to implement a Pure Drawdown Plan with Equity Release Supermarket would only cost approximately £395!

Where Does the Pure Retirement Plan Offer Clients Best Advice?

As previously stated, Pure Retirement Drawdown Plan has been targeted to meet those clients looking towards a maximum equity release in order to assist them with their retirement needs.

A recent example of how the Pure Drawdown Plan can still offer a client a greater net amount, even though the maximum release is lower than a competitor, can be illustrated by a case I recently encountered: –

CASE STUDY

Pam, aged 79 was looking to move property & required a lifetime mortgage to help her with the purchase. She was in good health & needed the maximum release possible to not only help with the purchase but also the moving costs & legal fees.

The purchase price for the 3 bedroom flat in Cornwall is £140,000.

Pamela requires the maximum release possible which following extensive research would point towards the Just Retirement Lump Sum Plus plan which would release £64,400 at an annual interest rate of 6.75%. This comes with a free valuation, £600 application fee, legal costs & advice fee.

Looking further down our research table identifies the Pure Drawdown Plan with a 6.74% monthly interest rate. However, the maximum release Pure would offer would be a lower amount of £63,000. But upon delving deeper into this product & by analysing the charging structure it shows that the actual Pure Retirement net release could be higher.

Fee Type /Provider

Valuation

Application

Legals

Advice

Legal Contribution

Advice Contribution

Net Costs

Just Retirement

FREE

£600

£600

£895

£0

£0

£2095

Pure Retirement

FREE

£0

£600

£895

£600

£500

£395

Evidently, the Pure Retirement plan has £1700 reduced set up costs, compared to the Just Retirement plan. The next part of this calculation is then offsetting this £1700 advantage that Pure Retirement has against the £1400 extra that Just Retirement can release as their maximum.

The final result therefore shows that Pure Retirement will have a greater net release to Pam of £300 and therefore proceeds with the recommendation as the £300 would be more advantageous in her pocket.

The message therefore is never look at the top line maximum amount, but always to consider any incentives that may help improve the net offering.

Existing Equity Release Customers Looking for Additional Funds

Other areas where Equity Release Supermarket customers have already benefitted from the new Pure Retirement lifetime mortgage is under two scenarios: –

Where they have an existing equity release plan & need further funds.

If looking to obtain a lower interest rate, yet no lender can provide sufficient funds to enable the equity release remortgage

Following the routine check to see if any additional borrowings are available with their existing lender, it’s then our duty to research the whole of the market to see if any other equity release providers could assist.

One of the issues against switching equity release schemes is usually the set up costs that prohibit the transfer. Under the two scenarios, in the first the charges could swallow up any of the spare cash being targeted, and in the 2nd scenario the set up costs make any transfer non-profitable as these costs offset any future savings in interest.

Its therefore the case that set up costs can prevent future maneuverability with any home equity scheme.

This is where the Pure Retirement Drawdown Plan can come into its own with its lower set up costs. Under both scenarios, Pure’s reduced set up costs will help with the switching of equity release schemes. Under the 1st scenario it will lead to more funds being available to withdraw & secondly in obtaining a lower interest rate its helps bring forward the break-even point.

Summary

Set up costs are an important aspect in the consideration of accepting any equity release recommendation. However, your adviser should consider the whole picture and features necessary in your meeting your requirements. This is why any equity release adviser should be experienced, qualified and importantly independent too.

Equity release schemes are the generic term encompassing all plans including lifetime mortgages & home reversion plans. They are potentially suitable for homeowners who preferably do not have a mortgage and have an income or lump sum requirement. If you are retired and want some money to enjoy your retirement then equity release is the best solution for you. By opting for equity release, you can unlock some amount of money against the value of your property without moving.

One of the best things about equity release is that it provides tax-free cash which can be used in various ways. This means that you can a buy a new car, go on holidays or pay of outstanding debts; more commonly credit cards & loans. There are different equity release schemes available in the market. One of the most preferred schemes is known as a home reversion plan.

What is a home reversion plan?

These schemes do not start until age 65, however I feel they only really offer preferential terms once the age of 70 has been attained. Under these schemes, you can sell a part or the whole of your property in return for a cash lump sum of money. Once you have opted for this scheme then your home or a part of it will belong to the reversion company. One of the two main advantages of home reversion schemes is that home reversion schemes allow you to live in your home for the rest of your life. The reversion company will grant you a lifetime tenancy which means you can live there rent free for the rest of your life. Additionally, because you are selling a percentage of the value of the house, then you are also guaranteeing the final percentage of the property that will pass to your beneficiaries. This is NOT the case with a lifetime mortgage scheme.

Advantages offered by home reversion plans

Once you receive money under a home reversion plan there is no need to worry about the repayments. This is because the lenders will get their share of the property value after your death & once the property is sold. Under this scheme, you can sell only a part of your property and keep the rest for your family or beneficiaries. This way, you can also benefit from the increasing value of the proportion of your part of the property. Home reversion schemes also tend to be cheaper in set up costs. The only fees with the major home reversion companies tend to be valuation & legal costs. Occasionally, Equity Release Supermarket do obtain free valuations as they do currently with Hodge Lifetime. Therefore, there would be no initial fees to pay on application & ALL costs would then be deducted on completion.

To obtain your guide to Home Reversion schemes, please contact the Equity Release Supermarket team on 0800 678 5159 or click here to register.